JULY/AUGUST 2020 VOLUME 4, ISSUE 7
T O P H ’ S TAX RESOLUT ION T I M E S
SHOULD YOU PAY THE IRS EARLY OR WAIT? A Matter of Timing
You never know what life is going to throw at you, whether it’s a pandemic, an illness, or job loss.
When you owe money to the IRS, there are times when it might make sense to hold on to your money until the due date. You may have the money ready to go, but should anything come up between now and when your taxes are due, having “extra” money on hand can be a lifesaver.
Once the IRS has your money, they are not going to refund it unless you have a valid reason.
Let’s say you do have money ready to go to the IRS. What should you do with it? First and foremost, you should set it aside. Assume that everything is going according to plan and that you will pay the IRS that amount. Keep it in a separate account; you want to have access to it in the event of an emergency, but you don’t want to keep it close enough that you spend it on anything else. To put it into context, I had a client who owed about $100,000 before the pandemic. He wanted to get it taken care of and not worry about it. As a result, he paid his tax bill in February rather than waiting for the April 15 due date — which eventually became the July 15 due date. Then the pandemic happened. His cash flow dried up, and he had little money left to pay the bills that started to arrive during the pandemic. While there were assistance programs available, he found himself in a very tough situation. Hindsight is 20/20, as they say. This story is a cautionary tale for everyone who may find themselves in a similar situation. Keeping your money in your hands is almost like an insurance policy. You have that money if your income shrinks, your cash flow dries up, your spouse gets sick, and so on. That said, in the event that you need to use those funds for an emergency, there are steps you can take to find a solution to the situation. For example, you may be able to negotiate with the IRS if you experience hardship and are unable to pay by the deadline.
For some people who find themselves in a hardship or emergency situation, it may make more sense to negotiate with the IRS later, rather than trying to pay in the immediate future. Your hardship is likely more important than paying the IRS on time. No matter the situation, however, you should not avoid paying the IRS. It’s all about timing and having a strategy in place. If you don’t have a reason to pay the IRS early, then keep your money until the deadline. But once the deadline arrives, make sure you pay as you had planned.
WHEN THE IRS COMES KNOCKIN’ ... LET US ANSWER THE DOOR!513tax.com
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